5 Tips to lower customer acquisition costs
Updated: Sep 24, 2019
The more you can shrink your CAC, the more you can grow your profit margin.
When you take charge of your customer acquisition costs, you take control of your business’s future. Customer acquisition cost, or CAC, is a metric that tells you how much it costs to acquire a new customer and convince someone to make a purchase, click a revenue-generating ad, subscribe , or any other method you have in place for onboarding new customers.
The more you can shrink your CAC, the more you can grow your profit margin. If you aren’t tracking your customer acquisition costs and taking a strategic approach to spending on marketing and advertising channels, guess what happens?
Yep, you guessed it – costs can go wild and spiral out of control, and you could end up losing money on the customers you do manage to bring in. Worse yet, you might not even realize it. So, instead of taking this wild stallion approach to your CAC, pick up the reins and take charge of your customer acquisition costs with these 5 tips.
Pay-per-click advertising is a great way to jump-start your customer acquisition numbers. Those ads let potential buyers or website visitors know about your business. But, you want to be strategic when setting up and placing your ads, both the ones you pay for and the revenue-generating ones you may have on your website.
A simple way to come out on top if web content is your business is to match your ad revenue with your advertising spend. For example, if you are paying three cents per click to advertise, the Google Ads on your website should be earning three cents per click. When you do this, you essentially eliminate your customer acquisition costs. If you can earn more per click on your website – let’s say you earn five cents per click for the ads you run – you would come out in the green with net earnings of two cents per click.
Here’s another example of what happens when you track and lower your customer acquisition costs, but it involves marketing your website offline with business cards and a little word-of-mouth marketing, or WOM. With this campaign, your objective is to spread the word about your website. You pay for the design and printing costs to create business cards that list your website and encourage people to visit. Let’s say your total design and printing costs were about three cents per card. And, like our digital advertising example, revenue earned per click for the ads on your website is three cents.
But – here’s the catch. There’s a 50/50 chance the person you gave your business card to will visit your website and click on one of your revenue-generating ads. So, now, that revenue per click is 1.5 cents. What you can do next is wait. Here’s why – if you give the campaign more time, you may get better results because your initial card – which you gave to one person – could influence a second person. If the first person you gave the card to tells another person about your website, that second person may visit and convert. This is WOM marketing in action, and it’s a potent marketing technique. Because that second person was referred to your website by someone they trust – their friend – they’re MUCH more likely to check your website and become a customer, which in this case entails clicking on your revenue-generating ads. Now, you’ve lowered your CAC because you’ve reached two people with one unit of your business card campaign!
You can also take this approach even further, helping to lower your costs and increase your net revenue even more.
Figure out how much it costs to run your website or your entire business profitably in total per month. For example, if you were running your business solely online, you’d look at all your ongoing website costs such as your:
Outsourced services such as SEO, content writing, and web maintenance
Then, break that total down into your revenue generation model, whether you use cost per click revenue, affiliate advertising, or if you are offering a product or service for sale.
Then, answer this question: How many clicks, sales, or other revenue units would you need to break even?
When you’re crystal clear about these numbers, you can focus on ensuring what you’re earning in revenue isn’t costing more than you have to spend to attract customers.
You’ve probably heard this before but no matter how amazing your great idea is, if it’s not moving your plot forward, kill it.
The same goes for marketing. If you’re not generating a certain amount of revenue within a set time, cut it and try something new or analyze it to see how you can change it enough to make it effective.
For example, if you’re running a PPC campaign targeting a specific keyword and you’re not getting results, stop wasting your time, money, and energy. If after a couple of months things aren't working out move on. You may want to try different keywords (maybe the ones you were using were too general). Or, you could switch gears and focus on a social media campaign or building up your organic search.
When you are starting your business, it’s a good idea to start with one marketing campaign at a time. This way, you can see if it’s effective at bringing in new customers. If you launch multiple campaigns at once – without advanced marketing software – you’ll have no idea which channels are increasing your revenue and by how much. Then as you learn which campaigns and what marketing channels resonate with your audience, you can start building a more complex marketing strategy. Then you can work on creating a seamless experience for your audience by tying all your marketing efforts together.
And the last – yet most critical part – of lowering your customer acquisition costs is to know your audience. Look at customer reviews and feedback. Once you have an email list, use customer surveys. Research your demographic to learn more about where they are, what interests them, and what you can do to address their needs. Look at what your target audience is saying on social media and industry forums, or just talk to them. The better you understand the needs and wants of your audience, the easier it is to target your PPC ads, social media, and other marketing efforts so that they are relevant to your audience.
When your marketing and advertising messaging truly resonates, lowering your customer acquisition costs gets even easier. When you are speaking directly to their wants and needs – you’re going to motivate action, whether it’s more website traffic, more engagement, or more purchases. Which means more revenue and more growth for your business, and superior value for your clients.